Interest rates on unsecured loans mainly used by mid- to low-credit borrowers have fallen, but the volume handled has decreased. This is the result of the government ordering rate cuts for vulnerable groups while simultaneously implementing regulations that reduce the loan limit.
According to the Korea Federation of Savings Banks on the 3rd, mid-rate unsecured loans (private mid-rate, Saitdol 2) handled by savings banks in the second half of last year (June–December), after President Lee Jae-myung took office, totaled 4.3748 trillion won, down 30.2% from the same period a year earlier (6.2719 trillion won). The number of loans during the period also fell from 449,538 to 426,231.
The average rate on private mid-rate loans, which account for most mid-rate unsecured lending, ranged from 10.81% to 16.45% by credit score from September to December last year. That is up to 0.5 percentage point lower than a year earlier (11.05% to 17.03%). President Lee Jae-myung emphasized lowering rates for vulnerable groups, noting that rates on policy finance products for low-income borrowers are "cruel."
Mid-rate unsecured loans are designed to ease the interest burden on mid- to low-credit borrowers and target the bottom 50% by credit. Saitdol 2 loans supplied by secondary financial institutions through guarantees from Seoul Guarantee Insurance Company are also included in mid-rate unsecured loans.
The contraction in mid-rate unsecured lending stems from household loan regulations. Since June last year, the loan limit on unsecured credit has been capped at annual income, reducing savings banks' lending capacity. Regulations rolled out to boost the effectiveness of real estate policy and manage household lending have resulted in weaker loan supply for mid- to low-credit borrowers.
At SBI Savings Bank, the industry leader, the amount per case of mid-rate unsecured loans handled from June to December last year was 11.4 million won, down from 16.5 million won a year earlier. While the number of cases during the same period rose 4% from 81,512 to 84,774, the amount handled fell 17.7% from 1.3459 trillion won to 971.9 billion won.
The savings bank industry argued that mid-rate unsecured loans, being products for mid- to low-credit borrowers, should be regulated differently. An industry official said, "All lending, including mid-rate unsecured loans, decreased after the regulations," adding, "It can also be seen that savings banks' deposits falling below 100 trillion won was due to the regulations."